Financial Statements and Asset Review for American Eagle Outfitters

The name of the company is American Eagle Outfitters, Inc. The company is broken down into two different brands: American Eagle and Aerie. Both brands compete in the retail industry. American Eagle provides products for men and women ages 15 to 25. Their products include clothing, outwear, underwear, fragrances, shoes, accessories like belts and jewellery for both men and women. Aerie is an intimate-focused brand that targets young women ages 15 to 25. American Eagle operates both brands in the United States, Mexico, Canada and Hong Kong.

Income Statement

For American Eagle’s statement of operations, they showcase data from the past 3 years, from 2018 to 2020. I could note the dollar and percentage changes by computing a horizontal trend analysis for each year. Table 1 shows the dollar amount and percentage change for cost of goods sold, expenses, net income and sales. The company’s cost of goods sold has increased since 2018 but has always remained under $3 million. The net sales and cost of goods sold have increased since 2018. The gross profit increase from 2019 to 2020 was only $34,663 or 2.3% compared to the $117,133 or 8.5% growth the company had from 2018 to 2019. This trend can be due to the large increase in expenses for 2020; there was a 50.3% increase in impairment and restructuring expenses for the company when the previous years’ thTablepense was relatively low. Total expenses grew 4.2% from 2018 to 2020 since total expenses went from 7.8% to an increased amount of 12%. From 2018 to 2020, American Eagle experienced a constant revenue increase. In 2019, a 6.3% increase in revenue or $240,171. In 2020, they also experienced an increase in revenue of 6.8% or $272,492. Overall, there has been a trend of the sales revenue increasing by almost the same amount each year.

Table 1

American Eagle’s Statement of Operations

TRENDS	FEBRUARY 1,	FEBRUARY 2,	FEBRUARY 3,	2019 –	2018-	%	%
	2020	2019	2018	2020 ($)	2019	CHAN	CHAN
					($)	GE	GE
						2019 –	2018-
						2020	2019

NET	$4,308,2	$4,035,7	$3,795,5	$272,49	$240,1	6.8%	6.3%
REVENUE	12	20	49	2	71
COST OF	$2,785,9	$2,548,0	$2,425,0	$237,82	$123,0	9.3%	5.1%
SALES (COST	11	82	44	9	38
OF GOODS
SOLD)
GROSS	$1,522,3	$1,487,6	$1,370,5	$34,663	$117,1	2.3%	8.5%
PROFIT	01	38	05		33
SELLING,	$1,029,4	$980,61	$879,68	$48,802	$100,9	4.9%	11.5%
GENERAL &	12	0	5		25
ADMIN.
EXPENSES
IMPAIRMENT	$80,494	$1,568	$20,611	$78,926	($19,04	50.3%	(92.4%)
AND					3)
RESTRUCTURING

CHARGES
DEPRECIATION	$179,05	$168,33	$167,42	$10,719	$910	6.4%	0.54%
N AND	0	1	1

AMORTIZATION EXPENSES
TOTAL	$1,288,9	$1,150,5	$1,067,7	$138,44	$82,79	12.0%	7.8%
EXPENSES	56	09	17	7	2
OPERATING	$233,34	$337,12	$302,78	($103,7	$34,34	(30.8%)	11.3%
INCOME	5	9	8	84)	1
OTHER	$11,933	$7,971	($15,615	$3,962	$23,58	49.7%	151.0%
INCOME			)		6
INCOME	$245,27	$345,10	$287,17	($99,82	$57,92	(28.9%)	20.2%
BEFORE TAXES	8	0	3	2)	7
PROVISION	$54,021	$83,198	$83,010	($29,17	$188	(35.1%)	0.23%
FOR INCOME TAXES				7)
NET INCOME	$191,25	$261,90	$204,16	($70,64	$57,73	(26.9%)	28.3%
	7	2	3	5)	9

Balance Sheet

In Table 2, I have used the figures in the balance sheet to calculate the trends for total assets, total liabilities and the stockholders’ equity to understand better how the company has performed over the past two years. AE has experienced a $1,425,301 or a 74.9% increase in total assets. The company had a $1,465,003 or 237.9% increase in total liabilities, including current and noncurrent. The large $1,255,892 or 1716.2% increase in long-term liabilities is what made a huge impact on total liabilities. While current and long-term liabilities totalled a $1,465,003 increase from the previous year, long-term liabilities were a huge portion of that increase, accounting for 85.7% of total liabilities. Stockholders’ equity took a hit from 2019 to 2020, with a decrease of 3.1%, with a dollar value of $39,702. Although total liabilities and stockholders’ equity and assets increased by 74.9%, you can see a trend of more liabilities and fewer stockholders’ equity for 2020. American Eagle Outfitters Inc. (AE), as of February 1, 2020, had 166,993 shares outstanding. The company’s common stock has a par value of $0.01 per stock.

Table 2

American Eagle’s Balance Sheets

FEBRUARY	FEBRUARY	AMOUNT	PERCENT
1, 2020	2, 2019	CHANGE	CHANGE
		FROM 2019	FROM 2019
		TO 2020 ($)	TO 2020 (%)

TRENDS

TOTAL ASSETS	$3,328,679	$1,903,378	$1,425,301	74.9%
CURRENT	$751,756	$542,645	$209,111	38.5%
LONG TERM LIABILITIES	$1,329,070	$73,178	$1,255,892	1716.2%
TOTAL LIABILITIES	$2,080,826	$615,823	$1,465,003	237.9%
TOTAL STOCKHOLDERS’ EQUITY	$1,247,853	$1,287,555	($39,702)	(3.1%)

Statement of Cash Flows

Table 3 below highlights major cash flow items from American Eagle’s statement of cash flows in each area. For the operations section, net income, depreciation and amortization, and operating lease assets were major influences in cash flow, contributing to over 45% of the total net Cash from operations. Net income is 46% of total net Cash provided by operating activities; depreciation is responsible for 43.6%; operating lease assets were the largest influence in 62.9% of the total operating cash flow. In the investing area, two line items had a major impact on Cash used for investments. Purchase of available-for-sale investments and capital expenditures for property and equipment were the largest items in the category, over 100,000. In 2020, the common stock repurchase was the only major cash flow item because it accounted for 53% of the total net Cash used for the financing area.

Over the past two years since 2018, there has not been a steady trend in cash flows between the three areas. From 2018 to 2019, all three areas increased: operating, investing and financing cash flow. From 2019 to 2020, there was, unfortunately, a large decrease in operating cash flow, where there was no positive cash flow from operations compared to before. Net income for 2020 was significantly lower, but their depreciation, amortization, and operating lease assets increased. Investing activities increased capital expenditures during 2020 by 21,339. The sale of available-for-sale investments also increased by 12,359. Investing activities net cash flow had a 107,935 decrease. This can be attributed to how in 2019, there was a 202,912 positive cash flow for the purchase of available-for-sale investments, which was not the same for 2020. In 2019, American Eagle’s cash and cash equivalents took an 80,283 decrease from the beginning balance of 413,613, which can be from their negative change in cash flow of 80,283. Over the past two years, American Eagle’s cash and cash equivalents increased from $333,330 to $361,930. This year, American Eagle had a positive change of cash flow totalling 28,600, so the company did have a positive cash flow from operations overall.

Table 3

American Eagle’s Statement of Cash Flows

	February 1, 2020	February 2, 2019	February 3, 2018
Operating Activities:
Net Income:	$191,257	$261,902	$204,163
Depreciation and Amortization:	$181,379	$170,504	$169,473
Operating lease assets:	$261,303	—	—
Net Cash Provided by Operating Activities:	$415,416	$456,645	$394,426
Investing Activities:
Capital Expenditures For Property and Equipment:	($210,360)	($189,021)	($169,469)
Purchase of available- for-sale investments		($202,912)
Sale of available-for- Sale investments:	$122,135	$109,776
Net Cash used for Investing Activities:	($174,894)	($282,829)	($172,150)
Financing Activities:
Repurchase of common stock as part of publicly announced programs:	($112,381)	($144,405)	($87,682)
Cash dividends paid			($88,548)
Net Cash used for Financing Activities:	($211,226)	($252,503)	($188,772)
Effect of exchange Rates on Cash:	($696)	($1,596)	$1,496
The net change in Cash And cash equivalents:	$28,600	($80,283)	$35,000
Cash and Cash	$333,330	$413,613	$378,613

equivalents –beginning of period:

Cash and Cash

Equivalents – end of period:

$361,930

$333,330

$413,613

Common Size Income Statement

Table 4 compares the income of American Eagle for the past two years. To see if there was a significant difference in income from 2019 to 2020, I have compared each line item to the total net revenue for that year. 2020 was not that great for income because there was an increase in the cost of goods, which also decreased their gross profit. Operating income decreased by 2.93%, and net income declined by 6.05%. This shows that although the company did not have a net loss, its net income and operating income is not accounting for most of the net revenue as they did in 2019. This may be due to the increase in impairment and restructuring charges and total expenses increasing by 1.41%.

Table 4

American Eagle’s Common Size Income Statement

TRENDS FEB. 1 FEB. 2, % CHANGE 2019 2020 2019 –2020

NET REVENUE

100%

—

COST OF SALES (COST OF GOODS

SOLD)

64.67%

63.14%

1.53 %

GROSS PROFIT

35.33%

36.86%

(1.53%)

NET REVENUE

100%

—

COST OF SALES (COST OF GOODS

SOLD)

64.67%

63.14%

1.53 %

GROSS PROFIT

35.33%

36.86%

(1.53%)

SELLING, GENERAL & ADMIN. EXPENSES	23.89%	24.30%	(0.41%)
IMPAIRMENT AND RESTRUCTURING CHARGES	1.87%	0.04%	1.83%
DEPRECIATION AND AMORTIZATION EXPENSES	4.16%	4.17%	(0.01%)
TOTAL EXPENSES	29.92%	28.51%	1.41%
OPERATING INCOME	5.42%	8.35%	(2.93%)
OTHER INCOME	0.28%	0.20%	0.08%
INCOME BEFORE TAXES	5.69%	8.55%	(2.86%)
PROVISION FOR INCOME TAXES	1.25%	2.06%	(0.81%)
NET INCOME	0.44%	6.49%	(6.05%)

Ratio Analysis of Financial Statements

After calculating the financial ratios for two years, I believe American Eagle has deteriorated since 2019. According to Figure A in the appendix, every ratio has decreased from 2019 except the debt-to-equity ratio, which increased by 1.19. This higher debt-to-equity ratio tells me that in 2020 American Eagle’s liabilities increased more than their available equity. Earnings per share decreasing by 0.35 can indicate that the company’s value may be decreasing and that they are not making as much money for each share of its stock. Working capital took a huge hit in 2020, where the ratio decreased by 2.07, showing they had a harder time generating large sales than the previous year.

Conclusion

The most interesting part of the annual report was how the total expenses for the year increased, and the net income decreased overall. The ratio analysis shows a different perspective than looking at the actual numbers. Based on my analysis of the company, I think they are currently in stagnation, jumping from decreasing to increasing every other year but never by much. Since their annual reports have been kind of bouncing around, I believe they should focus on improving to combat the inconsistency and instead have a steady increase for years.

Compared to the retail industry ratio averages for 2019 from ReadyRatios, it shows that American Eagle is not falling behind in every aspect, but they are significantly under their previous year, pushing them closer to the average or under. The working capital was one of their significant decreases, which may indicate too many account receivables being invested into and a surplus of inventory. The annual report’s performance in 2020 may have much to do with the worldwide pandemic, the Coronavirus that spread, causing countries to go on months-long shutdowns. 2020 hit retail businesses hard due to stores closing; retail companies not being considered essential businesses, so they have to remain closed longer, having more regulations enforced on how businesses care for employees during this time and restrictions on how many people (both customers and employees) can be in stores which limits foot traffic.

American Eagle relies heavily on malls because of how many store locations are located in shopping centres worldwide; these places in most countries were some of the last places to open and still have restrictions on them; this can be a major problem for in-person stores with little to no online shopping presence because, with no indoor shopping, less revenue to be made and more products on hand going to waste. In 2021, for American Eagle to recover and increase their profits again as it did in 2019, it would be to combat the effects of the pandemic by being more online-focused and trying to drive traffic to its online stores until the malls are less restricted. There is no telling how long the pandemic will be going on or when customers can freely shop in physical stores, but customers are still ordering things online while at home; American Eagle can take advantage of this surge in e-commerce and revamp their shopping sites to entice new and old customers alike.

References:

American Eagle Outfitters, INC. (2020). 2019 annual report. AEO Annual Report 2019.pdf Ratios, R. (n.d.). Retail Trade: Average industry financial ratios for U.S. listed companies.

Retrieved April 11, 2021, from https://www.readyratios.com/sec/industry/G/

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Question

This IP builds upon your work in Unit 1.

You will continue to analyze and interpret the financial statements for American Eagle Outfitters, Inc. Using the financial statements (located in Appendix A: American Eagle Outfitters, Inc., 2020 Annual Report of the required textbook: Financial Accounting), review the company’s assets.

Financial Statements and Asset Review for American Eagle Outfitters

Consider the following questions:

What are the cash needs of the company?
What is the value of the company’s cash and cash equivalents?
What type of receivables does the company have?

Deliverable Requirements: Your evaluation of assets should have at least 5 pages (the title and reference pages are not counted in these 5 pages), and follow the requirements below for using the APA style. Your evaluation should include the following:

For your evaluation of current assets, present industry findings regarding assets.
Address the questions above, and consider their implications for American Eagle Outfitters, Inc.
Do not forget to review the notes on the financial statements for additional information about the company’s assets.

Submitting your assignment in APA format means that you will need the following at a minimum:

Title page: Remember the running head. The title should be in all capitals.
Length: There should be at least 5 pages.
Body: This begins on the page following the title and abstract pages and must be double-spaced (be careful not to triple- or quadruple-space between paragraphs). The typeface should be 12-point Times New Roman or 12-point Courier in regular black. Do not use colour, bold type, or italics except as required for APA-level headings and references. The deliverable length of the body of your paper for this assignment is 5 pages. In-body academic citations to support your decisions and analysis are required. Using a variety of academic sources is encouraged.
Reference page: References that align with your in-body academic sources are listed on the final page of your paper. The references must be in APA format and use appropriate spacing, hanging indentation, italics, and uppercase and lowercase for the type of resource used. Remember that the reference page is not a bibliography but a further listing of the abbreviated in-body citations used in the paper. Every referenced item must have a corresponding in-body citation.